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The State of the States: Governors Focus on Performance in Time of Deficits

States are experiencing the full force of the most dramatic economic downturn since the Great Depression. In 2010, governors have come up with novel ways to present their budget managing strategies they believe are required for survival in this environment—from elaborate analogy to elementary comparisons with neighboring states. In general, though, governors paint a dark fiscal picture for residents; most push no new taxes and lots of credits to spur job growth. It is not surprising, then, that these state leaders advocate spending down reserves and advancing performance and efficiency measures along with continued state retrenchment back to core functions. This research examines the governors’ 2010 state of the state addresses to understand how they are coping in the current economy and how their collective attention has changed over the last few years.1 Findings indicate contradictions. For example, while the governors are much more likely than last year to talk about performance, accountability and even ethics reform, they are much less likely than in 2009 to bring up transparency.

Table A: Issues Expressed by Governors in State of the State Addresses, 2007-2010: Download in Excel or PDF

Table B: Federal Prosecutions of Public Corruption: Proportion of Total Officials Prosecuted, by Prosecution Status: Download in Excel or PDF

The Politics

By 2010, 54 percent of state chief executives are Democrats. Thirty-seven gubernatorial elections will be held this year and in 14 of those, the incumbent is running for another term. The other 23 elections include either governors who have run up against term limits and cannot run again or are part of the more than one-third who could run again, but have decided not to or, for various reasons, been pressured to throw in the towel. As Craig Ruff, public policy consultant and former gubernatorial adviser, aptly noted regarding the race for governor in Michigan, “I don’t think Pollyanna is going to fly this year. There’s just too much reality.”2 For example, governors in Colorado, Connecticut, Florida, Kansas, Minnesota, Vermont and Wisconsin could seek the office again, but have chosen not to run. New York Gov. David Paterson was beginning to ramp up his campaign for a second term as chief executive when it was derailed by his alleged role in a case of domestic violence against one of his aides. Undoubtedly, the continuing and highly charged battles raging across the nation regarding health care reform, federal stimulus funds, the direction of the war on terror and other policy issues, will make battles for state gubernatorial seats very contentious later this year.

State legislatures do remain heavily Democratic, though Republicans have made inroads. Overall, state houses are predominantly Democratic (67 percent) as are state senate bodies (58 percent). And, both houses of the legislature are majority Democratic in 27 states and in 14 states both houses are majority Republican, unchanged since last year. Six states have split legislatures in which the house and senate have different party majorities, down from eight states so split in 2009 and a dozen such states in 2008. Democrats lost one state house since last year—32 state houses are majority Democratic while 16 are majority Republican. Montana’s House of Representatives is now evenly split. On the senate side, Democrats lost one state senate since last year—28 are majority Democratic while 20 remain majority Republican in 2009. Alaska’s Senate is now evenly split. (Nebraska has a unicameral, nonpartisan legislature.)

Sixteen states are majority Democratic with a Democratic governor and majority Democratic legislature, down one from last year; nine states are Republican, up one from 2009. The states break down in terms of party control accordingly:

Nine with Republican governor and legislature

One with Republican governor and unicameral legislature

One with Republican governor, Republican House and split Senate

One with Republican governor and split legislature

11 with Republican governor and Democratic legislature

Five with Democratic governor and Republican legislature

Five with Democratic governor and split legislature

One with Democratic governor, split House and Republican Senate

16 with Democratic governor and legislature

The Fiscal Picture

Many consider the U.S. to be in the middle of a second Great Depression. The lagged effects of the national recession on state and local governments directly contribute to the ongoing freefall of the own source revenues of these governments. This fiscal stress is also exacerbated as unemployment continues to hover around 10 percent nationally. In the last two years alone, state and local governments have purged more than 110,000 jobs.3 And since the official start of the current economic downturn in December 2007, states have grappled with hundreds of billions of dollars in budget gaps.

According to the National Conference of State Legislatures, budget gaps for the 2009 fiscal year (following budget enactment) totaled more than $47 billion. And, for the 2010 fiscal year, states anticipate more than $84 billion in budget gaps. Some of the most egregious gaps in 2010 include:

Nevada’s estimated $1 billion gap is 38 percent of the general fund budget;

Arizona’s estimated $3 billion gap is 28 percent of the general fund budget;

New York’s estimated $13 billion gap is 24 percent of the general fund budget; and

California’s estimated $24 billion gap is 22 percent of the general fund budget.4

Given this bruising economy, abrupt resizing and restructuring of state governments have become more commonplace. The Pew Center on the States paints the picture of slimmed and streamlined governments. States are experimenting with four-day workweeks and virtual meetings, drastically paring down and eliminating travel and continuing education budgets, recentralizing procurement operations, and squeezing several agencies into one.5 Nevada Gov. Jim Gibbons noted when discussing necessary layoffs in his state, “Society is changing. State government must change with it. We must focus on the important services which ensure life, health, education and public safety. We will have to eliminate programs and services which make some people feel good, but which we simply can no longer afford.” And, although some pundits believe the “end of the Great Recession” occurred sometime around September 2009, others contend real economic recovery will not happen until 2012 or beyond—and this assumes no further cataclysmic events that would shock the economy going forward.6

Last year, governors were fairly direct about faltering budgets, calling for sacrifices and thrift in the next fiscal year. Many matched initiatives with those of new President Barack Obama—especially emphasizing government transparency, performance accountability and the functional areas of health, education and especially, transportation and infrastructure, all areas front and center to the funding specified in the American Recovery and Reinvestment Act that passed February 2009. This year, a few governors used analogies, personal reflections, or even state comparisons to help citizens comprehend the enormity of the problems right now.

Indiana Gov. Mitch Daniels provided some comparisons to make residents feel a bit more comfortable by pointing to the “49 other addresses being given, almost all under conditions far more grim than those we confront.” He revealed a study that says, “our budget problem is one of the smallest in the nation. Illinois’ fiscal problem is four times larger than ours. Arizona’s, five times. California’s, six times. Out there, the governor recently exclaimed in desperation, ‘How could we let something like that happen?’ So far at least, no one in this room has to ask that question.”

In Kansas, Gov. Mark Parkinson told a very personal story to sell education investments.

“… we got married in our second year of law school. Not smart, but we were in love and had big dreams. We lived in a mobile home and had no money, but we didn’t care. We had each other and a future that we hoped for. … Stacy and I have lived the American dream and we have lived it without ever leaving Kansas. I tell you this not to boast of our good fortune; I tell you this because I want to make sure that future generations of Kansans have the same opportunities as Stacy and me. We are able to live this life because legislators and governors decades ago decided that building great public schools and universities was the right thing to do. We are able to live this life because in Kansas, you didn’t have to be rich to go to a good school or go to college.”

California Gov. Arnold Schwarzenegger presented an Aesop’s fable-like analogy of the necessary teamwork to wrestle his state’s budget woes with the following:

“Now, I want to begin with a true story from which we can draw a worthwhile lesson. As you might guess, the Schwarzenegger household is something of a menagerie … and in recent years we added a miniature pony and a pot-bellied pig. Now, it’s not unusual for me to look up from working on the budget or something and to find the pig and the pony standing right there in front of me and staring at me. Now, the dog’s food, which we keep in a canister with a screwed-on lid, sits on the top of the dog’s kennel. And the pony has now learned how to knock the canister off the top of the kennel and then he and the pig wedge it into the corner. Now, there’s this ridge on the lid of the canister and the pig with his snout pushes this ridge around and around until it loosens up and then they roll the canister around on the floor until the food spills all out. And then, of course, they go to town and they eat it. Now, I have no idea how they ever figured all of this out, to tell you the truth. I mean, it’s like humans figuring out how to create fire. But it is the greatest example of teamwork and I love it. It’s about teamwork. So one lesson to draw from the pig and the pony story is what we can accomplish when we work together.”

Michigan Gov. Jennifer Granholm called for a “good dose of Mom’s common sense. My mom can pinch pennies with the best of them, but she also taught me not to be penny-wise and pound-foolish … common sense dictates that we shouldn’t leave money on the table in Washington for roads and infrastructure that would create jobs in Michigan.” Likewise, Tennessee Gov. Phil Bredesen asked residents to understand “the state budget as a ‘family budget.’ It’s nothing more than the common sense idea that we’re going to adjust our expenses to match our income, and we’re going to be very careful about using money from our savings account.”

On the other hand, Georgia Gov. Sonny Perdue gave a speech so devoid of budget and policy focus that many were left wondering if it indeed was his state of the state address. In some respects, his speech was more sermon than strategic vision. He began with “the challenge we face is very real. But we can rest in the knowledge that America has seen these times before,” and then provided a history lesson spanning from the Revolutionary to Vietnam wars. Interspersing his speech with quotes from Alexis de Tocqueville and the reflections of Thomas Paine, Perdue said, “These times demand that we worry less about bringing home the pork, and more about empowering our people to grow their own hogs.” He followed that with, “Governing is a team sport and we are all on Team Georgia.” Agenda items teased out from this speech include implementing teacher pay linked to student performance and specific investment for the mentally challenged and developmentally disabled. Perdue also expressed interest in making “Georgia an ‘employer of choice’ that can attract and retain top talent going forward.”

Table A presents content analysis for governors’ 2010 addresses and compares gubernatorial budget and policy agendas for the last several years. In 2010, the largest percentage of governors—nearly 80 percent—than in any of the previous years recognized their military service personnel and/or veterans in state of state addresses. Certainly, much of the uptick in this recognition by governors of military service and troop engagements surrounds relief efforts to the Haitians following the devastating earthquake that occurred on Jan. 12, 2010. This year, most governors paid tribute to the work of their military and residents in support of Haiti, as well as that of military personnel and veterans serving in Iraq and Afghanistan.

Table A results show for every year since the official start of the Great Recession, at least half the state chief executives discuss issues surrounding core functions of state governments—education, health and welfare, transportation, public safety and economic development. On the other hand, these findings illustrate some dramatic changes in gubernatorial focus across years, and especially from 2009 to today. For example, there are pronounced differences from 2009 to 2010 in gubernatorial discussion of state rainy day funds, reserves and/or deficits, performance and accountability, health care, transparency, taxes and revenues, and transportation. Undoubtedly, American Recovery and Reinvestment Act funds supporting health care and transportation-related programs and infrastructure, as well as continued debate at the federal level over health care reform shunted these issues to the back burner of gubernatorial budget and policy agendas this year.

Hitting the Reserves

The greatest leap to the top of gubernatorial agendas in 2010 regards current budget gaps and the use or need for rainy day funds and/or reserve funds. This year, governors were more likely to target use of rainy day funds, advancing program efficiencies, spending cuts, layoffs and furloughs rather than bring up tax increases. For example, Arizona Gov. Jan Brewer asked residents to support a legal “limitation on the future growth of government and to save more, for a rainy day.”Schwarzenegger pressed for legislation in California that includes “performance-based budgeting, applying one-time spikes in revenues to one-time uses, such as debt reduction, infrastructure and creating a rainy day fund.” Connecticut Gov. Jodi Rell proposed that “any bond authorization that has been on the books for five years or more without being allocated by the State Bond Commission will automatically be canceled. … Also, I am offering a proposal (for) an automatic requirement that half of any budget surplus declared by the comptroller be automatically deposited into the state’s rainy day fund.” Hawaii Gov. Linda Lingle also supports a constitutional amendment, but to replace the state’s rainy day fund with a fiscal stabilization fund to be replenished when tax revenues are increasing rather than granting currently mandated refunds to taxpayers. Minnesota Gov. Tim Pawlenty is asking for “a constitutional amendment to require that future spending commitments not exceed revenues currently collected.”

Oklahoma Gov. Brad Henry pointed out to residents that “for the first time in history, the rainy day fund is full, preserved for its intended purpose: a rainy day. And ladies and gentlemen, it is raining. This budget crisis is precisely the kind of emergency that citizens envisioned 25 years ago when they voted to create the rainy day fund. Now is the time to use our reserve dollars to preserve crucial services. This year, I ask for your support in raising the cap on rainy day fund deposits from 10 percent to 15 percent of general revenue collections.” In Kansas, Parkinson called on the legislature to pass the “Vratil-Kelly Constitutional Amendment that would require us to set a portion of state revenue aside to create an emergency fund. In years of declining revenue we would tap into the fund and avoid the situation we are currently in. It is time that we put our fiscal house in order and lay the foundation for a solid financial future for this state.”

Other governors presented different ideas about a reserve strategy. South Carolina Gov. Mark Sanford seeks “passage of a bill that limits government’s growth to population plus inflation, and then allocates everything beyond this to first paying down our state’s huge unfunded liabilities.” Tennessee’s Bredesen seems generous in his explanation of the use of reserves in that state “to fund the continuation of a number of programs for a two-year period. The reason for funding for two years instead of one was to give a new governor some breathing room at the beginning of his or her term, and to give additional time for the economy to recover and perhaps make the cuts a moot point.” Governors in both Indiana and Maryland emphasized their states’ triple A credit ratings as reasons to reach and maintain budget balance through prudent management of reserves along with other resources.

Interestingly, Wyoming Gov. David Freudenthal is hesitant to spend down reserves. “I would encourage you when people say, ‘All right, the government needs to spend the reserves,’ ask them how they’re managing their own finances and if they are prepared to bet their house, their savings, their livelihood on the very gamble that they’re asking us to take with the state's money. I encourage you not to go into the Legislative Stabilization Reserve Account. Stay out of that.” And, even in the current fiscal climate, Alaska and Alabama governors presented “no cut” budgets. For example, Gov. Bob Riley of Alabama emphasized that, “In fact, there is the potential for them to receive an increase of up to 4 percent. And in the education budget, that budget will increase funding for schools by over $400 million.” Alaska Gov. Sean Parnell presented a balanced budget to the legislature and “left a surplus of revenue. We do not spend everything on the table.” Perhaps not surprisingly, debt reduction, which was on the minds of about 14 percent of governors in 2007, was not mentioned by one governor this year.

Hiking Performance and Efficiencies

Despite the depressed economy, the greatest proportion of governors in the last four years discussed performance and accountability in their speeches. Approximately 74 percent of governors in 2010 talked about efficiency measures to ensure core state services, up from 52 percent of governors discussing this issue in 2009. Idaho Gov. C.L. “Butch” Otter, pressed that, “We must live within our means.” His budget “eliminates more than 400 positions throughout state government—including about 375 that now are vacant—and consolidates some agency operations. He is also proposing a hold back of an “additional $40 million from all state agencies and operations—including public schools.” Nevada Gov. Jim Gibbons also called for “laying off several hundred state workers,” while Tennessee’s Bredesen noted the possibility of laying off more than 1,300 state workers and eliminating more than 450 unfilled positions. Delaware Gov. Jack Markell outlined the elimination of 1,000 state positions, the consolidation of numerous state commissions and boards (Washington Gov. Christine Gregoire mentioned eliminating 73 of these and New Mexico Gov. Bill Richardson called for similar consolidations), modernizing vendor payments, eliminating numerous printing of state documents (like budget books), renegotiating real estate leases and conducting a tax amnesty program. In Indiana, Gov. Mitch Daniels talked about saving $70 million with new economies of scale: “The largest of these would permit us to manage our two pension funds under one administration.”

Other governors asked for greater flexibility to cut departments and budgets up to 10 percent (Mississippi); to make permanent cuts or “eliminate stalled capital outlay projects and end the practice of double dipping” (New Mexico); structural changes to reduce spending at the municipal level (Rhode Island); and program redesigns to support single point of entry and flexible options (Vermont). Virginia Gov. Bob McDonnell began closing that state’s $4 billion budget gap in his office: “I will return a portion of my salary. Members of my cabinet and senior staff are taking a pay cut. My secretaries will reduce the size of their staffs and budgets.” He is also asking for reform of the state’s budget cycle to realize cost savings. Similarly, Michigan’s Granholm hawked a constitutional amendment requiring the budget be passed by the start of the fiscal year or the pay of elected officials in the state will be docked, “for every day we don’t get the job done.”

No New Taxes

Governors were 17 percent more likely to discuss tax and revenue issues this year than in 2009. Most mention of taxes by these state leaders was to emphatically support no new ones, or reductions to or no increases of present ones. For example, Connecticut’s Rell explained that, “We need to recognize that not every service, not every program, not every function is absolutely essential. We need to acknowledge that higher taxes are not the solution to our problems.” Other governors followed suit, “Number one, we must not raise taxes” (Idaho’s Otter); “I will not support a tax increase to balance this budget” (Maine Gov. John Baldacci); “Whether it’s a special session or a regular legislative session, I will oppose any attempt to increase income or sales taxes” (Nebraska Gov. Dave Heineman); “As long as I serve as your governor, I will not raise taxes” (Nevada Gov. Jim Gibbons); “I strongly believe the best thing we can do for our State, our citizens, and our economic recovery is to exercise continued fiscal restraint and to not raise taxes” (Utah Gov. Gary Herbert); “The single most consequential action we can take to encourage a healthy economy is to address the crushing weight of Vermont’s tax burden” (Gov. Jim Douglas); “And if you pass a budget embedded with those same tax increases, I will not approve it” (Virginia Gov. Bob McDonnell). Along with such commitment, the greatest proportion of governors (88 percent) since 2007 mapped out economic development plans that often included tax credits or exemptions. Most held firm to a tax cut approach to advance business development and job creation in the poor economy.

Ethics Reform

State chief executives in 2010 were more than 10 percent more likely than last year to discuss ethics reform in their addresses to residents. Table B presents public officials federally prosecuted by case status for those at the federal, state and local levels (and others) in the U.S., in 1990 and 2007. During this period, the proportion of federal officials charged and convicted of offenses declined, while the proportions of state and local officials charged and convicted increased. No doubt, such trends, and in light of several very high profile state official corruption scandals over the last year in particular, ethics reform has become a top flight issue among citizens and elected officials alike.

Riley of Alabama asks for reforms that “will make government even more accountable and more transparent—limits on gifts, full disclosure of potential conflicts of interest, subpoena power for an ethics commission. These are all long-overdue changes that will make state government and each one of us more accountable.” In complimenting the legislature for recent ethics reform, Daniels in Indiana pushes for a number of other reform applications, “While you’re at it, please respond to the plea of mayors of both parties and all parts of our state, and end the egregious conflicts of interest that occur when public employees sit on city and county councils, voting on their own salaries and overriding the decisions of their own management.” Also according to Daniels, “The worst examples of gerrymandering and politician protection can be found in other states, but a glance at Indiana’s current lines shows that they are nothing to be proud of. Let’s commit to the kind of principles that assure Hoosiers that in our state, voters will pick their officeholders and not vice versa.”

Missouri Gov. Jay Nixon has a four point plan for ethics reform: “1) Stop the sneaky, back-door donations from committee-to-committee; 2) Ban one officeholder from working as a political consultant for another officeholder; 3) Shut the revolving door between the legislature and lobbyists, for good; and 4) most importantly, set strict limits on campaign contributions.” In New Mexico, Richardson presented a list of “vital” reforms he envisions to keep officials clean, including whistleblower protections and conflict of interest disclosure by contractors; bans on candidates conducting taxpayer-funded public service announcements; an end to the revolving door of legislators and lobbyists; and bans on campaign contributions by corporations, state contractors or lobbyists. He is also asking for the creation of “an independent, bipartisan, citizen-led ethics commission to investigate, discipline, fine or censure, not just public officials or state employees, but also contractors and lobbyists.” Governors in Pennsylvania and Utah are asking for some similar reforms, while West Virginia Gov. Joe Manchin is pushing ethics reforms specific to the state judiciary, “to relieve judges from the burden of political fundraising and to reduce the potential for appearance of bias as a result of campaign donations.”

Ironically, Paterson in New York mapped out “comprehensive ethics reform—not driven by the illegal acts of any one person, but instead by what is legal and rampant in our entire system of government.” He was later under the microscope himself for allegedly interfering in a domestic violence charge against one of his aides and accepting sporting tickets. His “Reform Albany” agenda will address campaign contributions and campaign finance; transparency; retract the pensions of officials who commit felonies; and push for a constitutional amendment defining term limits on New York’s elected officials. According to Paterson, “The inevitable goal of this legislation is to bring fairness and openness to government, which has very little of either. The moneyed interests, many of them here today as guests, have got to understand that their days of influence in this capitol are numbered.”

Conclusion

Governors are severely constrained this year; the Great Recession has meant a “back to the basics” retrenchment in states. But, since the official start to this recession, at least half of the governors have focused on the core services and functions of state governments in their annual state of the state speeches. State leaders continue to advocate tax cuts, credits and exemptions, primarily to promote stronger economies and job growth. The results of such policies, at least in the short term, however, are lost revenues that contribute to fiscal stress. On the other hand, these leaders must be given credit for continuing to push for better performance, economies of scale and greater efficiencies among state operations, services and programs, in spite of the fact that direct spending cuts like layoffs and program shuttering can work against such advancements.

Notes

1. Chief executives of state governments report annually or biennially to their legislatures regarding the fiscal condition of their state, commonwealth or territory. Governors often use their address to lay out their policy and budget agendas for their upcoming or continuing administration. The 2010 state of the state addresses were accessed from January through February 25, 2010 via www.stateline.orgor using the state government’s homepage. This research considers those 42 states with transcripts available at this site as of February 25, 2010. Speeches not available by this date included those from Arkansas, Florida, Louisiana, Montana, North Carolina, North Dakota, Oregon and Texas. All quotes and data presented here are from the addresses accessed on these websites, unless otherwise noted.

7. To conduct a content analysis of governors’ state of the state addresses, as in the past, topics were considered addressed if the chief executive specifically discussed them as relevant to state operations and the budget going forward. The governor needed to relay that the function, activity or issue is an important item in the 2011 fiscal year budget and policy direction. Just mentioning a state function or policy area like economic development in a speech did not classify the issue as an agenda item addressed by a governor. Further, a review by the governor of past accomplishments alone in any particular issue area did not count in this content analysis. The only deviation from this protocol regards mention by a governor of military troops, family and veterans. A governor recognizing service on the part of these individuals and/or indicating thanks for this service, with or without recommending some future support to such personnel, is indicated for this issue in the results.

About the Author

Katherine Willoughby is professor of public management and policy in the Andrew Young School of Policy Studies at Georgia State University in Atlanta. Her research concentrates on state and local government budgeting and financial management, public policy development and public organization theory. She has conducted extensive research in the area of state budgeting practices, with a concentration on performance measurement applicability at this level of government in the United States.